How top food industry CFOs save time and money on accounts receivable management

by Jimmy Cooper | Feb 4, 2020 | Blog

The food processing industry is Australia’s largest manufacturer (austrade.gov.au). From paddock to port, the food industry contributes billions of dollars in employment and revenue. What’s more, the world-class reputation of the Australian food industry has seen both domestic and export markets grow at a healthy rate over the last decade.

Right now, the food industry is weathering many storms: climate change, fast-moving consumer trends, rising costs of raw materials and labour…the list goes on. Now more than ever, food industry chief financial officers (CFOs) must mitigate surging costs, cashflow risks and business inefficiencies. The bottom line depends on it. And top CFOs know it.

The challenge to stay afloat persists: the food industry routinely registers in the top three industries for insolvency each year in Australia (ASIC Annual Insolvency Statistics).

The not-so hidden costs in accounts receivable management

Accounts receivable has an impact on cashflow, but that’s not all. Financial controllers in the food and beverage industry routinely lament a productivity cost, with hours of staff time lost to chasing unpaid invoices every day. The injustice irks them, too. After all, the sales team earned the sale, the buyer received their goods — they’ve even had time to sell them — and yet, the bank account is bare.

The costs of accounts receivable management are often hiding in plain sight. Here are the major ones:

• Labour: Midsized businesses often have a small team of credit controllers chasing unpaid invoices every month. At ezyCollect, we meet a lot of larger businesses that have been losing up to 40 hours a week as busy staff spend time trying to collect overdue invoices.
  
  
• Customer churn: Buyer-supplier relationships can disintegrate because of invoice disputes and late payments if they’re not handled with care.
  
  
• Bad debt: As invoices age, they become harder to recover. Stubborn debts can end up as bad debt write-offs. Retailers, typically the buyer for the food and beverage industry, are consistently in the top two slowest paying industries (illion, September 2019 Late Payments Analysis.)
  
  
• Lost working capital: Food and beverage companies that commence using ezyCollect’s technology for accounts receivable management start with tens of thousands of dollars owing. Creeping overdue debt can quickly cripple an otherwise thriving business.
  
  
• Loans: Short-term loans and debt and invoice financing options help cover cashflow shortfalls but not without facility fees.
  
  
• Personal hardship: Many companies in the food and beverage industry are family-run businesses. The Australian Small Business and Family Enterprise Ombudsman found that late payments have significant negative ramifications on mental health (Review of Payment Terms, Times and Practices, March 2019).
  
  

Tech solutions can alleviate the pain

Traditionally, accounts receivable management has been a labour-intensive task, with financial controllers adding headcount as the go-to solution to chase overdue customers.

However, the top CFO is thinking differently. Cloud accounting software has changed how accounts teams work. Financial controllers now deeply understand how technology can streamline cash management functions by taking care of the daily grind.

Here’s what top CFOs in the food industry do to curb the costs of accounts receivable:

Follow a credit risk management plan

Protect the business from the cashflow risk of late paying customers by running a credit check before issuing credit to new and existing customers. Fail to do a credit check with a reputable bureau and you run the risk of being blindsided by a customer who never pays or constantly pays late.

Depending on the business credit check you order*, you’ll get your customer’s risk rating for late payment and even business failure. (Contact us to trial our soon-to-be released credit risk service with ezyCollect.)

CFOs then offer cash on delivery only, or shorten payment terms for medium-to-high risk payers and monitor their payment behaviour.

An ongoing credit risk monitoring service rounds out the protection and is a good investment in long-term piece of mind. You’ll receive email or sms alerts to any significant credit activity your customers register in the market. This way, you’re the first to know — not the last to know — when your customer is at risk of defaulting.

*Users of ezyCollect can order a business credit check report from within the application.

Maintain an up-to-date debtor database

The debtor database can easily become out-of-date if you lose track of your debtor’s contact details. Top CFOs know that the debtor database is the foundation of essential follow-up payment reminders. How does your credit controller communicate with overdue customers if he or she can’t contact them?

In addition to contact details, credit controllers need to know what communications the debtor has received, opened and responded to. They want to know how much is owing and how overdue it is. They want know what the next course of action is, based on previous activity. Financial controllers understand that their teams need one central source of truth to track invoices to payment. Without it, they’re flying blind, and that’s a waste of time and resources.

Convert invoices into cashiers

In the digital era, invoices should no longer be just another passive document that arrives in the post or inbox. Your invoice is the primary calling card for payment and should actively collect money for you.

Top CFOs in the food industry understand the time-poor nature of their buyers, so they make sure the invoice is fully optimised to create a seamless payments experience for the customer.

1. Systematically prepare and send invoices without delay.
2. Clearly state payment terms and due date at the top of the invoice.
3. Add a Pay Now button to digital invoices so customers click to enter their payment portal and pay.
4. List all the payment methods you accept on your invoice.
5. Issue invoices without errors or omissions.
   
   

Automate routine reminders

Human labour in the food industry is a major cost to running a business…so why waste it on routine tasks? Especially when many tasks in accounts receivable are ideal for automation, simply because they follow a set of rules. For example, send a reminder if an invoice is overdue by one day, send a second email after seven days, make a collection call on Day 13. While an employee can certainly follow these rules, consistently completing the tasks becomes impossible as the business grows. On the other hand, automation software is designed to do these routine tasks in bulk.

Best of all? Your staff are no longer locked down with tedious tasks and have more time for processing credit applications or making necessary collection calls.

Collect money online

Using an online payment systems means that your staff won’t need to spend time manually accepting payments over the phone or banking cheques. That’s because your customers will self-serve to complete their payments through the online checkout you provide.

What’s more, an online customer payment portal also serves as a depository for all of your customer’s open invoices. Food industry buyers typically replenish their stock regularly and carry many open invoices from the same supplier. With one place to view, click and pay, your buyers have the convenience of paying multiple invoices at once. And you can collect bulk payments easily. ezyCollect’s online payments solution instantly upgrades your payment options – check it out!

Offer buy now pay later

In the B2C space, buy now pay later is almost an essential, says Power Retail in its retail industry report BNPL 2019: More Shoppers, More Players and More Options. Buy now pay later has been found to stimulate sales, give consumers more choice and increase the average order value.

It follows that suppliers in the B2B space can reap those rewards, too. Certainly at ezyCollect, we’ve seen an increasing uptake in suppliers who offer our buy now pay later option to their debtors. What debtors love is the opportunity to repay a finance provider over time, while maintaining an on-time payment relationship with their supplier.

Outsource stubborn debts to a debt collection agency

In the words of Kenny Rogers, top CFOs ‘know when to hold ’em, know when to fold ’em, know when to walk away, and know when to run.’

Referring your stubborn debts to the professional debt collectors allows the trained professionals to take over your collection efforts. Debt collectors who are trained in positive collection techniques not only have a better recovery rate than your untrained staff, they also relieve them of chasing activity that isn’t generating results.

Ditch the paper trail

One CFO in the health food industry told us: “We were printing off ledgers and by the time we got to making follow-up calls, we needed to reprint them.”

Instead of a paper trail that quickly becomes outdated, rely on a digital database that updates as often as you need it and allows you to track invoices and keep a comprehensive audit trail of debtor management activities. Ditch the paper trail and also the frustration and wasted time.

Key points:

• The CFO in the food and beverage industry has a key strategic role to steer the business towards profitability and away from cashflow risks.
• Purpose-built technology supports staff productivity and collection success.
• Digital solutions such as automated reminders and online payments save labour costs.
• Customers seek a better payments experience and diverse payment options.
  

Thinking about streamlining your collections process to cut accounts receivable costs? Book in for a 1:1 product tour with an ezyCollect specialist today.